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2022 (11) TMI 783 - SC - Income TaxTDS u/s 194H - Commission / brokerage on Air Tickets - Supplementary Commission - Non deduction of tax at source ( TDS ) at 10% plus surcharge from payments falling under the definition of Commission or Brokerage - Penalty proceedings against the airlines u/s 271C - reasonable cause for the air carriers to have not deducted TDS at the relevant period - Interpretation of Section 194H as introduced by the Finance Act, 2001, with effect from 01.04.2000 - characterization of the income earned by the agent besides the Standard Commission of 7% and whether this additional portion would be subject to TDS requirements under Section 194H - HELD THAT - If we view the ambit of Section 194H in an expansive manner, the factum of the exact source of the payment would be of no consequence to the requirement of deducting TDS. Even on an indirect payment stemming from the consumer, the Assessees would remain liable under the IT Act. Consequently, the contention of the airlines regarding the point of origination for the amounts does not impair the applicability of Section 194H of the IT Act. Our conclusion in terms of the application of Section 194H of the IT Act to the Supplementary Commission amounts earned by the travel agent is unequivocally in favour of the Revenue. Section 194H is to be read with Section 182 of the Contract Act. If a relationship between two parties as culled out from their intentions as manifested in the terms of the contract between them indicate the existence of a principal agent relationship as defined under Section 182 of the Contract Act, then the definition of Commission under Section 194H of the IT Act stands attracted and the requirement to deduct TDS arises. The realities of how the airline industry functioned during the period in question bolsters our conclusion that it was practical and feasible for the Assessees to utilize the information provided by the BSP and the payment machinery employed by the IATA to make a consolidated deduction of TDS from the Supplementary Commission to satisfy their mandatory duties under Chapter XVIIB of the IT Act. In light of the consensus between the parties that the travel agents have already paid income tax on the Supplementary Commission, there can be no further recovery of the shortfall in TDS owed by the Assessees. However, interest may be levied under Section 201(1A) of the IT Act. As an epilogue to this aspect of the matter, the Assessing Officer is directed to compute the interest payable by the Assessees for the period from the date of default by them in terms of failure to deduct TDS, till the date of payment of income tax by the travel agents. It will be open to the Assessing Officer to look into any details that are necessary for completion of this exercise, including verification of whether tax was actually paid at all by the agents on the amounts from which TDS was supposed to be subtracted. Given that no documentary evidence was placed before us, we are conscious that there may be certain anomalies which the Assessing Officer is best positioned to iron out. In the eventuality that any of the agents have not yet paid taxes on the Supplementary Commission, the Revenue will be at liberty to proceed in accordance with law under the IT Act for recover of shortfall in TDS from the airlines. However, we limit the ability to levy penalties against the Assessees in light of Section 273B of the IT Act. While we reject the arguments of the Assessees on merits in terms of their liability under Section 194H of the IT Act, we hold in their favour on the count of the matter having been rendered revenue neutral due to the apparent payment of income taxes on the amounts in question by the travel agents. The Assessing Officer is directed to expeditiously complete the assignment of determining the interest payable in accordance with the guidelines laid down above, so as to bring a quietus to the litigation. Appeal allowed in part.
Issues Involved:
1. Interpretation of Section 194H of the Income Tax Act, 1961. 2. The principal-agent relationship between airlines and travel agents. 3. Applicability of TDS on Supplementary Commission. 4. Revenue neutrality and consequences for non-deduction of TDS. 5. Penalties under Section 271C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Interpretation of Section 194H of the Income Tax Act, 1961: The core issue was the interpretation of Section 194H, which mandates the deduction of tax at source (TDS) on "Commission" or "Brokerage" payments. The definition of "Commission" under Section 194H includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another for services rendered. The court emphasized that the relationship between the travel agents and the airlines was that of a principal-agent, and thus, any income earned by the agents, including the Supplementary Commission, fell under the purview of Section 194H. The court rejected the argument that the Supplementary Commission was outside the principal-agent relationship, stating that the entire transaction, including the Supplementary Commission, was part of the services rendered by the agents on behalf of the airlines. 2. The Principal-Agent Relationship Between Airlines and Travel Agents: The court examined the Passenger Sales Agency Agreements (PSA) and concluded that the travel agents acted on behalf of the airlines in selling tickets. The PSA explicitly stated that the travel documents remained the property of the airlines until issued to the customer. The court noted that the agents were authorized to sell tickets on behalf of the airlines, and the airlines indemnified the agents for any issues arising from the transportation services. Therefore, the relationship was that of a principal-agent, and the income earned by the agents, including the Supplementary Commission, was part of this relationship. 3. Applicability of TDS on Supplementary Commission: The court held that the Supplementary Commission, earned by the travel agents over and above the Net Fare, was subject to TDS under Section 194H. The court reasoned that the Supplementary Commission was an indirect payment received by the agents for services rendered on behalf of the airlines. The court rejected the argument that the airlines had no control over the final sale price and thus could not deduct TDS, stating that the airlines could utilize the Billing and Settlement Plan (BSP) to gather the necessary data and make consolidated TDS deductions. 4. Revenue Neutrality and Consequences for Non-Deduction of TDS: The court acknowledged that the travel agents had already paid income tax on the Supplementary Commission, making the matter revenue-neutral. Referring to the precedent set in Hindustan Coca Cola Beverages Pvt. Ltd. v. Commissioner of Income Tax, the court held that the airlines could not be pursued for recovery of the shortfall in TDS if the agents had already paid taxes on the income. However, the court directed the Assessing Officer to compute interest under Section 201(1A) for the period between the default in TDS deduction and the payment of taxes by the agents. 5. Penalties Under Section 271C of the Income Tax Act: The court considered the applicability of penalties under Section 271C, which imposes penalties for failure to deduct TDS. The court noted that the issue of TDS on Supplementary Commission was a "nascent" legal issue with contradictory High Court rulings, indicating a genuine legal conundrum. The court held that the airlines had "reasonable cause" for their failure to deduct TDS, as required under Section 273B, which excuses penalties if reasonable cause is proven. Consequently, the court quashed the penalty proceedings against the airlines. Conclusion: The court affirmed the Delhi High Court's judgment on the applicability of Section 194H to the Supplementary Commission, requiring airlines to deduct TDS. However, recognizing the revenue-neutral nature of the case, the court directed the Assessing Officer to compute the interest payable by the airlines and quashed the penalty proceedings under Section 271C, citing reasonable cause for the airlines' failure to deduct TDS. The appeals were allowed in part, bringing closure to the long-standing legal controversy.
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